U.S. Treasury yields to skyrocket; debt, policy, demand converge.

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Gordon Johnson, a notable figure in economic analysis, has sounded the alarm on U.S. Treasury yields, predicting they’re set to soar to unprecedented heights. His reasoning is multifaceted, painting a picture of a “perfect storm” for yields that could shake the foundations of global finance.

First, Johnson points out that the two largest historical buyers of U.S. Treasury debt are currently net sellers, with European holdings also on a downward trajectory. This shift in demand dynamics could lead to a significant increase in yields as there are fewer traditional buyers to absorb the supply. When major holders like these start selling, it signals a potential crisis of confidence in U.S. debt, pushing yields up as investors demand higher returns for the increased risk.

Second, the incoming U.S. Treasury Secretary under Trump, Scott Bessent, is expected to deviate from Janet Yellen’s strategy of focusing on short-term debt issuance. Bessent has previously critiqued this approach, highlighting the risks associated with high bill issuance, including higher interest expenses and increased refinancing volatility. His anticipated policy shift towards longer-term securities could mean the market will have to absorb more debt over a longer period, naturally pushing yields upward due to the increased supply of bonds.

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The third and perhaps most alarming point Johnson raises is the sheer volume of U.S. debt needing refinancing in 2025. With an estimated $7 trillion in debt to be refinanced compared to $2.3 trillion in 2024, the scale of this issuance is colossal. More debt issuance generally leads to higher yields as the market absorbs the additional supply. This massive refinancing requirement could become a significant driver of yield increases, potentially destabilizing markets unprepared for such a supply shock.

Johnson’s analysis suggests we’re on the brink of a significant financial adjustment, where the combination of reduced demand, a strategic shift in debt management, and an unprecedented level of debt refinancing could lead to yields “WAY, WAY higher” than current levels. This scenario could have wide-reaching implications, from making borrowing more expensive for the government to potentially triggering a cascade of effects across global markets, where investors might seek higher returns elsewhere, further exacerbating the situation.

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This warning from Johnson, through his firm GLJ Research, might be one of the few voices clearly articulating the potential for a seismic shift in the bond market. If his predictions hold, we’re not just looking at a correction but possibly the start of a new era for U.S. Treasury yields, with significant implications for economic policy, inflation, and investment strategies worldwide.

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